Coronavirus and its Impact on the Global Supply Chain
by Maureen Perroni, on February 25, 2020
As a new strain of coronavirus – formally known as COVID-19 – has sickened over 9.1 million people worldwide, it’s also thrown a wrench into complex global supply chains. Fearful of spreading illness through crowded factories, much of the Chinese manufacturing industry has stood down. This in turn has forced US manufacturers and retailers to rapidly seek alternative producers, suppliers, and methods of transportation. With no end to the outbreak in sight, its an open question as to whether the world’s commercial network will be able to flex and accommodate a new reality.
What’s the Magnitude of the Coronavirus Problem?
In terms of manufacturing, of the most unfortunate issues related to the coronavirus has been its timing – squarely in the middle of the Lunar New Year. This is a time when residents of China travel widely throughout the region in order to visit with friends and relatives. In terms of an epidemic, however, this period of travel is an excellent way to spread disease.
As a result, people who traveled during the Lunar New Year are now stuck in mandatory 14-day quarantines that are being rigorously enforced by local governments, and they cannot return to work. Foxconn, one of China’s largest employers and the manufacturer of the iPhone, has had production lines that normally employ thousands of people reduced to skeleton crews of a dozen.
What Happens when China’s Factories Shut Down?
China’s manufacturing output is enormously concentrated in Wuhan and Hubei Province as a whole. Its automotive, pharmaceutical, and telecommunications industries operate dozens of companies within the region. Just one effect of the coronavirus outbreak is that the country as a whole is projected to lose out on the production of over one million cars.
This production freeze has ripple effects. Factories that are shut down in Wuhan produce OEM components that are valuable to other automakers, which must halt or slow down their production in turn once these parts are unavailable. Due to the shutdown in China, for example, Hyundai has suspended its production in South Korea. Even European carmakers such as BMW and Volkswagen are projecting an earnings reduction of 5 percent due to their entanglements in Asia.
COVID-19, of course, is producing economic ripple effects that extend far beyond the automotive sector. The mobile device industry sources millions of components from China every year, and the coronavirus disruption has led companies such as Apple to delay the release of new iPhone models and lower their economic forecasts. Meanwhile, the medical device industry is reeling as equipment that had been slated for export is now being repurposed for China’s internal use. How are foreign manufacturers coping with the shutdowns and delays?
Finding Alternatives to China is More Difficult Than Expected
Chinese manufacturers and suppliers are at the heart of so many supply chains that it’s become difficult to find any alternative. Even if a company sources a part from a country such as Vietnam or Cambodia, for example, it may turn out that they’re sourcing raw materials and subassemblies from China – and that their supplier is currently shut down due to fears of an outbreak.
What’s more, it’s important to remember that not every company in China is a massive conglomerate. Companies like Foxconn will receive heavy subsidies from the Chinese government in order to remain open and productive – but smaller suppliers may not. It will take much longer for these suppliers to get back on their feet, and some will go out of business entirely. In other words, many companies may find that the supply chain disruptions caused by the coronavirus aren’t simply a passing phase.
Lastly, both shipping and air freight have been hit hard by coronavirus panic. Travel restriction have meant that there are fewer tankers and container ships at sea, fewer personnel to keep ships running, and less space to store merchandise at ports. In total this may lead to a 25 percent reduction in annual shipping revenue. Air freight is undergoing a similar shrinkage, with many airlines completely shutting down flights to and from China.
To summarize, companies don’t just need to find new suppliers – potentially on a permanent basis – they also need to find new logistics partners in order to compensate for shipments that will be indefinitely delayed due to quarantine.
Adapt to a Changing Supply Chain with Enterprise Labeling from Loftware
To manage this vast shift in the global supply chain and maintain continuous operations, companies must be ready and able to re-route product and find new suppliers that aren't being impacted by the virus. To do this and keep maintain supply chain continuity, they must be able to quickly and easily make updates to existing labels. This is why it's important to enable business users the flexibility to create and update barcode labels to meet evolving requirements in a timely manner without relying on scarce IT resources. Implementing an Enterprise Labeling Solution with powerful business logic empowers business users, reduces the use of costly IT resources and improves the speed and efficiency of the label design process.
Additionally, the coronavirus pandemic has sparked a rush for companies to find new manufacturing and 3PL vendors. Unfortunately, the more rapid the transition, the larger the potential for mistakes. When companies work with new partners that are unfamiliar with their practices and policies, or which have unfamiliar equipment and networks, it becomes that much more difficult to manage labeling to ensure accuracy and consistency as well as regulatory compliance.
Loftware's Enterprise Labeling software lets you seamlessly extend controlled access to labeling for new partners and suppliers so you can avoid further disruption. Rather than having your vendors undertake label design on their own – potentially missing regulatory or other important details – our Enterprise Labeling solution offers access to label templates to avoid relabeling. Loftware also allows you to integrate labeling with enterprise applications so you can leverage your business processes and ‘sources of truth’ for label data. Loftware's solutions allow you to quickly and easily make changes to meet any new regional, language or regulatory or requirements so companies can change labeling to accommodate new routes, shipments and partners.
For more information about Loftware and how we enable a more flexible supply chain, contact our representatives today!